Quantum Guides below Estimates

Quantum (QTM) reported a 2nd Quarter September 2017 loss of $0.19 per share on revenue of $107.1 million. The consensus estimate was a loss of $0.01 per share on revenue of $122.0 million. Revenue fell 20.6% compared to the same quarter a year ago.

The company said it expects third quarter non-GAAP earnings of $0.16 to $0.22 per share on revenue of $120.0 million to $125.0 million. The current consensus earnings estimate is $0.24 per share on revenue of $141.3 million for the quarter ending December 31, 2017.

Quantum Corporation Reports Fiscal Second Quarter 2018 Results

Quantum Corp. (QTM) today reported results for the fiscal second quarter 2018 ended Sept. 30, 2017, and made a number of other announcements.

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Fiscal Second Quarter Results For the fiscal second quarter 2018, Quantum reported the following (all comparisons are relative to the fiscal second quarter 2017 unless otherwise stated):

• Total revenue of $107.1 million, down from $134.7 million in the prior year period which included approximately $15 million in revenue from a large public cloud deal. The year-over-year decline was greater than expected largely due to timing of closing deals at quarter end, third-party component supply shortages and softness in disk backup systems sales.

• Scale-out tiered storage revenue1 of $33.8 million, a decline of $12.9 million, largely attributable to the public cloud deal a year earlier.

• Total data protection revenue of $63.9 million, down from $78.4 million and consisting of:

• $11.7 million in disk backup systems revenue, down from $18.7 million in the comparable quarter which included several deals exceeding $1 million.

-- Royalty revenue of $9.3 million, a decline of $300,000.

• GAAP net loss of $7.9 million, or $0.23 per diluted share, compared to net income of $4.1 million.

• Non-GAAP net loss of $4.9 million, or $0.14 per diluted share, compared to net income of $6.4 million.

"Were disappointed that our results fell short of our expectations, but were taking aggressive action to improve our cost structure and generate consistent growth and profitability," said Fuad Ahmad, senior vice president and CFO of Quantum. "We believe part of the challenge at quarter end involved timing of deals, and weve already shipped more than 50 percent of the revenue from deals that werent closed, including those delayed by third-party component supply shortages.

"Despite the difficulties we encountered in the quarter, there were some bright spots, including strong year-over-year growth in video surveillance, positive customer reception to our new StorNext 6-powered solutions and the increased market opportunities resulting from new partnerships."

CEO Transition Quantum has named board member Adalio T. Sanchez interim CEO to replace Jon Gacek, who has left the company. Sanchez is a 35-year IT industry veteran who spent most of his career at IBM, including 16 years in senior executive and global general management roles. The board also has formed a search committee which will be headed by Chairman Raghu Rau and has retained Korn Ferry International to commence a search for a permanent CEO.

"Adalio brings tremendous domain expertise in systems and storage, along with a proven track record of transforming businesses," said Rau. "Since joining the board in May, Adalio has been leading our engagement with AlixPartners and will hit the ground running to drive improved execution at the company."

Convertible Notes Repayment and Additional Financing Quantum announced that it has secured a $20 million incremental delayed draw term loan financing facility from TCW Direct Lending. The new capital is being provided under amended credit agreements with TCW and PNC Bank and is on top of the $170 million financing package with the two lenders that the company announced in October of last year. This brings the total cash secured under delayed draw term loans to $40 million, including $20 million in previously committed funds. In addition to the incremental financing, the amended agreements include less restrictive covenants than the original agreements.

"We appreciate the continued support from our lenders," said Ahmad. "The additional financing will give us more financial and operational flexibility to execute and puts us on track to pay off the remaining $57 million of the companys convertible notes upon maturity next Wednesday, Nov. 15."

Executing on Strategic Review to Transform Quantums Business In June, Quantums newly reconstituted board of directors initiated a comprehensive strategic review of the companys business and engaged AlixPartners to assist in identifying cost savings to increase profitability, financial flexibility and growth investments. The cost reduction measures will result in $5 million of savings in the second half of this fiscal year (or $15 million on an annualized basis) and up to $35 million in annualized savings by the end of fiscal 2019.

Appointment of Eric Singer to Quantum Board Quantum has appointed Eric Singer, founder and managing member of VIEX Capital Advisors and the companys largest shareholder, to the board. Singer will bring a shareholder perspective to the board and will assist in creating increased value for all shareholders.

Guidance for Fiscal Third Quarter and Second Half of Fiscal 2018 Quantum provided the following guidance for the fiscal third quarter 2018:

-- Total revenue of $120 million to $125 million.

-- GAAP and non-GAAP gross margin of 42-44 percent.

• GAAP operating expenses of approximately $46 million to $47 million and non-GAAP operating expenses of approximately $45 million to $46 million.

• GAAP and non-GAAP interest expense and loss on debt extinguishment of $6.3 million and $2.7 million, respectively, and taxes of $500,000.

• GAAP earnings per share of $0.05 to $0.07 and non-GAAP earnings per share of $0.16 to $0.22.

The company also provided the following guidance for the second half of this fiscal year:

-- Total revenue of $250 million to $260 million.

• GAAP earnings per share of $0.19 to $0.25 and non-GAAP earnings per share of $0.36 to $0.42.

Fiscal Second Quarter Business Highlights

• Quantum announced general availability of StorNext 6, a major new release of the companys award-winning StorNext? scale-out file system. It delivers a unique combination of new advanced data management features for on-premise, hybrid cloud and public cloud environments and industry-leading streaming performance. Now shipping with the companys Xcellis workflow storage solutions, StorNext 6 enables users to overcome the limitations of traditional NAS systems in keeping up with the demands of large, rapidly growing data-intensive workloads and driving business value from that data.

• The company introduced Xcellis Foundation, a high-performance, entry-level workflow storage system specifically designed to address the technical and budgetary requirements of small-to medium-sized postproduction facilities and corporate video departments. The new system delivers the benefits of enterprise-class Xcellis storage, including high performance and scalability, in a NAS appliance for under $25,000.

• Quantum unveiled aiWARE(TM) for Xcellis, an on-premise and cloud version of the artificial intelligence (AI) platform from Veritone. By bringing Veritones multi-engine AI capabilities into a StorNext-managed environment, aiWARE for Xcellis enables users to leverage the power of Veritones cognitive services and applications to extract new value from their on-premise video and audio content. The integrated solution is ideal for companies with significant investments in on-premise storage and/or latency, cost or security concerns about cloud storage because it puts powerful AI processing behind corporate firewalls.

• Announced in late August, aiWARE for Xcellis quickly garnered a NewBay Best of Show Award at the IBC2017 show in September. Award criteria included innovation, feature set, ease of use, versatility and ROI. In addition, at the end of September, Quantum secured its first customer win for the new solution. FOX Sports Brazil, an existing StorNext customer, is deploying aiWARE for Xcellis to enrich and index both archived content and live video streams through cognitive analytics.

About Quantum Quantum is a leading expert in scale-out tiered storage, archive and data protection, providing solutions for capturing, sharing, managing and preserving digital assets over the entire data lifecycle. From small businesses to major enterprises, more than 100,000 customers have trusted Quantum to address their most demanding data workflow challenges. Quantums end-to-end, tiered storage foundation enables customers to maximize the value of their data by making it accessible whenever and wherever needed, retaining it indefinitely and reducing total cost and complexity. See how at www.quantum.com/customerstories.

Quantum, the Quantum logo, aiWARE, StorNext and Xcellis are either registered trademarks or trademarks of Quantum Corporation and its affiliates in the United States and/or other countries. All other trademarks are the property of their respective owners.

"Safe Harbor" Statement: This press release contains "forward-looking" statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. Specifically, but without limitation, statements relating to: i) expected annualized cost savings for Fiscal 2018 and Fiscal 2019; ii) the aggressive actions we are taking to improve our cost structure and generate consistent growth and profitability; iii) our expectation that the additional financing will give us more financial and operational flexibility; iv) paying down the remaining $57 million of the companys convertible notes upon maturity next Wednesday, Nov. 15; v) Board and leadership changes driving improved execution at the company and assisting in creating increased value for all shareholders; and vi) all of our statements under the heading "Guidance for Fiscal Third Quarter and Second Half of Fiscal 2018" are forward-looking statements within the meaning of the Safe Harbor. All forward-looking statements in this press release are based on information available to Quantum on the date hereof. These statements involve known and unknown risks, uncertainties and other factors that may cause Quantums actual results to differ materially from those implied by the forward-looking statements. More detailed information about these risk factors are set forth in Quantums periodic filings with the Securities and Exchange Commission, including, but not limited to, those risks and uncertainties listed in the section entitled "Risk Factors," in Quantums Annual Report on Form 10-K filed with the Securities and Exchange Commission on June 1, 2017 and in Quantums Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 9, 2017. Quantum expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

Use of Non-GAAP Financial Measures

Quantum believes that the non-GAAP financial measures disclosed above provide useful and supplemental information to investors regarding its quarterly financial performance. Quantum management and Board of Directors use these non-GAAP financial measures internally to understand, manage and evaluate the companys business results and make operating decisions. For instance, Quantum management often makes decisions regarding staffing, future management priorities and how the company will direct future operating expenses on the basis of non-GAAP financial measures. In addition, compensation of our employees is based in part on the performance of our business based on non-GAAP operating income.

Amortization of Intangible Assets This includes acquired intangibles such as purchased technology in connection with prior acquisitions which are included within other long-term assets in the Condensed Consolidated Balance Sheet. These expenses are not factored into managements evaluation of potential acquisitions or Quantums performance after completion of the acquisitions because they are not related to Quantums core operating performance. In addition, the frequency and amount of such charges can vary significantly based on the size and timing of acquisitions and the maturities of the businesses being acquired. Excluding acquisition-related charges from non-GAAP measures provides investors with a basis to compare Quantum against the performance of other companies without the variability caused by purchase accounting.

Share-Based Compensation Expense Share-based compensation expense relates primarily to equity awards such as stock options, restricted stock units and employee stock purchase plan. Share-based compensation is a non-cash expense that varies in amount from period to period and is dependent on market forces that are often beyond Quantums control. Management believes that non-GAAP measures adjusted for share-based compensation provide investors with a basis to measure Quantums core performance against the performance of other companies without the variability created by share-based compensation as a result of the variety of equity awards used by other companies and the varying methodologies and assumptions used.

Amortization of Debt Costs Amortization of debt costs, included in interest expense, relates to the amortization of fees incurred and paid in connection with the issuance of our debt and convertible notes. Amortization of debt costs is a non-cash expense that is representative of a single transaction which occurred in prior periods. The amount is excluded from non-GAAP financial measures because it is not considered a core operating activity. Management believes that it is appropriate to exclude the amortization from interest expense in order to provide investors the ability to compare Quantums period-over-period results from continuing operations.

Restructuring Charges Restructuring charges primarily relate to expenses associated with changes to Quantums operating structure. Restructuring charges are excluded from non-GAAP financial measures because they are not considered core operating activities. Although Quantum has engaged in various restructuring activities in the past, each has been a discrete event based on a unique set of business objectives. Management believes that it is appropriate to exclude restructuring charges from Quantums non-GAAP financial measures, as it enhances the ability of investors to compare Quantums period-over-period operating results from continuing operations.

Proxy Contest and Related Costs Proxy contest and related costs are expenses incurred to respond to activities and inquiries of VIEX Capital Advisors, LLC, including their proxy solicitation and subsequent costs related to the identification and appointment of new board members. These costs are not considered core operating activities. Management believes that it is appropriate to exclude these costs in order to provide investors the ability to compare Quantums period-over-period operating results from continuing operations.

Litigation Costs Litigation costs are expenses incurred to defend ourselves and perform other activities related to certain patent infringement lawsuits filed by third parties. These costs are excluded from non-GAAP financial measures because they are not considered core operating activities. Management believes that it is appropriate to exclude these costs in order to provide investors the ability to compare Quantums period-over-period operating results from continuing operations.

Business Transition Costs Business transition costs were expenses incurred from a third party consulting firm to identify opportunities for reducing costs, achieving greater operational efficiencies and reinvesting to accelerate growth. These costs are excluded from non-GAAP financial measures because they are not considered core operating activities. Management believes that it is appropriate to exclude these costs in order to provide investors the ability to compare Quantums period-over-period operating results from continuing operations.

Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. They are limited in value because they exclude charges that have a material impact on the companys reported financial results and, therefore, should not be relied upon as the sole financial measures to evaluate the company. The non-GAAP financial measures are meant to supplement, and be viewed in conjunction with, GAAP financial measures. Investors are encouraged to review the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measures as provided in the tables accompanying this press release.

The non-GAAP financial information set forth in these tables is not prepared in accordance with generally accepted accounting principles and may be different from non-GAAP financial information used by other companies.

QUANTUM CORPORATION

GAAP TO NON-GAAP RECONCILIATION

(In thousands, except per share amounts)

(Unaudited)

Three Months Ended September 30, 2016

Gross

Gross

Income

Operating

Net Income

Per Share

Per Share

Margin

Margin Rate

From

Margin

Net Income, Net Income,

Operations

Basic

Diluted

GAAP

$

55,726

41.4

%

$

5,592

4.2

%

$

4,072

$

0.12

$

0.12

Non-GAAP Reconciling Items:

Amortization of intangibles

48

48

48

Share-based compensation

234

1,650

1,650

Restructuring charges

--

15

15

Proxy contest and related costs --

304

304

Litigation costs

--

128

128

Amortization of debt costs

--

--

168

Non-GAAP

$

56,008

41.6

%

$

7,737

5.7

%

$

6,385

$

0.19

$

0.19

Computation of basic and diluted net income per share:

GAAP

Non-GAAP

Net income

$

4,072

$

6,385

Interest on dilutive convertible notes

--

902

Income for purposes of computing net income per diluted share

$

4,072

$

7,287

Weighted average shares:

Basic

33,804

33,804

Dilutive shares from stock plans

244

244

Dilutive shares from convertible notes

--

5,313

Diluted

34,048

39,361

Six Months Ended September 30, 2016

Gross

Gross

Income

Operating

Net Income

Per Share

Per Share

Margin

Margin Rate

From

Margin

Net Income,

Net Income,

Operations

Basic

Diluted

GAAP

$

106,372

42.4

%

$

3,801

1.5

%

$

552

$

0.02

$

0.02

Non-GAAP Reconciling Items:

Amortization of intangibles

95

95

95

Share-based compensation

514

3,648

3,648

Restructuring charges

--

2,067

2,067

Proxy contest and related costs --

350

350

Litigation costs

--

141

141

Amortization of debt costs

--

--

336

Non-GAAP

$

106,981

42.6

%

$

10,102

4.0

%

$

7,189

$

0.21

$

0.21

Computation of basic and diluted net income per share:

GAAP

Non-GAAP

Net income

$

552

$

7,189

Interest on dilutive convertible notes

--

--

Income for purposes of computing net income per diluted share

$

552

$

7,189

Weighted average shares:

Basic

33,549

33,549

Dilutive shares from stock plans

150

371

Dilutive shares from convertible notes

--

--

Diluted

33,699

33,920

The non-GAAP financial information set forth in these tables is not prepared in accordance with generally accepted accounting principles and may be different from non-GAAP financial information used by other companies.

QUANTUM CORPORATION

FORECAST THIRD QUARTER FISCAL 2018

GAAP TO NON-GAAP RECONCILIATION

(In thousands, except per share amounts)

(Unaudited)

Dollars

Forecast operating expense on a GAAP basis

$

46.0

$ 47.0

Forecast share-based compensation

(1.0)

Forecast operating expense on a non-GAAP basis

$

45.0

$ 46.0

Dollars

Forecast interest expense on a GAAP basis

$6.3

Forecast amortization of debt costs

(0.2)

Forecast interest expense on a non-GAAP basis

$6.1

Dollars per Share

Forecast diluted earnings per share on a GAAP basis

$

0.05

--

$ 0.07

Forecast debt extinguishment costs

0.08

0.10

Forecast share-based compensation

0.01

0.03

Forecast amortization of debt costs

0.02

Forecast diluted earnings per share on a non-GAAP basis $

0.16

$ 0.22

Estimates based on current fiscal 2018 projections.

The projected GAAP and non-GAAP financial information set forth in this table represent forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For risk factors that could impact these projections, see our Annual Report on Form 10-K filed with the SEC on May 31, 2017.

We disclaim any obligation to update information in any forward-looking statement.

The non-GAAP financial information set forth in this table is not prepared in accordance with generally accepted accounting principles and may be different from non-GAAP financial information used by other companies.

QUANTUM CORPORATION

SECOND HALF OF FISCAL 2018

GAAP TO NON-GAAP RECONCILIATION

(In thousands, except per share amounts)

(Unaudited)

Dollars per Share

Forecast diluted loss per share on a GAAP basis

$

0.19

$ 0.25

Forecast debt extinguishment costs

0.10

Forecast share-based compensation

0.06

Forecast amortization of debt costs

0.01

Forecast diluted earnings per share on a non-GAAP basis $

0.36

$ 0.42

Estimates based on current fiscal 2018 projections.

The projected GAAP and non-GAAP financial information set forth in this table represent forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For risk factors that could impact these projections, see our Annual Report on Form 10-K filed with the SEC on May 31, 2017.

We disclaim any obligation to update information in any forward-looking statement.

The non-GAAP financial information set forth in this table is not prepared in accordance with generally accepted accounting principles and may be different from non-GAAP financial information used by other companies.